You don't need to be a diehard Apple fan to know that the iPhone is hot. Almost any tidbit of news relating to the phone has immediate and widespread distribution, and rumors are constantly being debated on Apple forums and blogs.
Rumors about the iPhone no longer requiring an AT&T contract for operation have been a staple of discussion almost since the device launched in 2007. They appeal to people who either are unhappy with AT&T’s services, think the AT&T/Apple deal is anti-competitive or are locked into a long-term contract with another carrier. Tales of a Verizon iPhone coming in 2009 have been among the quickest to spread. Even old rumors that somehow cycle back into current RSS feeds spark another round of reporting, rumors and hoopla.
But the Verizon iPhone speculation is unlikely to come true in the short term. There's a very good reason for this -- the Apple/AT&T exclusivity deal. While the terms of the deal have not been disclosed, the most reliable reports give 2010 as the earliest possible date for the deal’s expiration.
Both AT&T and Apple have a lot to gain from their exclusive arrangement. The benefits to AT&T seem the most obvious -- the iPhone is the No. 1 seller at AT&T, and about 40% of its 4.3 million customers who activated an iPhone in the second half of 2008 were new to AT&T, according to a quarterly filing by the company. Moreover, the churn rate among iPhone owners is low and the revenue per customer is relatively high.
While it may seem less obvious why Apple would lock itself into selling phones exclusively through AT&T, there are good reasons for doing so. Namely, subsidies. AT&T is selling the iPhone for $199 with a 2-year contract, but to do so, it is paying hundreds of dollars in subsidies. Reports say that up to $425 per iPhone is going back to Apple from AT&T. Add on top of the subsidies the concessions Apple got from AT&T that allow it to sell applications and music with no revenue share, and the exclusive arrangement is a pretty sweet deal for Apple, too.
The Industry Standard prediction market agrees that a Verizon iPhone is looking extremely unlikely before summer, with community consensus under 30%. Unless the efforts by consumer organizations and rivals to outlaw exclusive mobile phone partnerships are successful, it doesn’t look like the Apple/AT&T agreement will be ending any time soon.
Melissa Chang (@mchang16) is the president of Pure Incubation, and her blog can be found at www.16thletter.com. Chang writes about The Industry Standard Prediction Market as part of an ongoing series. She’s betting that she won’t be able to use an iPhone on Verizon until at least 2010.
Comments
To add to your last comment, even if exclusivity deals are outlawed that would not mean an iPhone for Verizon. iPhones use GSM technology and Verizon uses a non-compatible CDMA network (and T-Mobile uses the wrong frequencies for 3G). Apple would not come out with a CDMA version due to the fact that Verizon, like AT&T, will be switching over to LTE technology in 2010 to 2012.
To expand on Mike's comment, the reason the iPhone is a GSM phone, is because that same phone with little change is sold by Apple in 50+ countries worldwide. This is economy of scale at its best. Apple has the larger picture in mind and is not going after a CDMA or TDMA phone which can only be sold here, Korea and maybe a couple of other places. The pool of verizon money, while large, is just not worth the headache, and as Mike states, before you know it, LTE will be here, the contract will be up, both Verizon & AT&T will be using very similar technology and everybody will be happy, except Sprint and T-Mobile who will be more marginalized than ever.
Announced today, VoLGA (Voice over LTE via Generic Access) Forum just adds more complexity to voice service offering for LTE. Initial services on LTE will be broadband wireless access (BWA). How carrier will deploy Voice over LTE will play some role for Apple's iPhone and other phone manufacturers wishing to play in the LTE space.
I would also bet Verizon would not want to pay any subsidies. Nor would they let Apple have 100% revenue on music or apps.
GSM vs CDMA is an issue but it's nowhere near a no-way, no-how deal breaker for iphone & verizon.
it's a radio change...not trivial but also not complicated...plenty of phone manufacturers build GSM and CDMA versions of their phones with very little hassle.
Likewise, given the fact that Apple shopped the phone to Verizon, it wouldn't be surprising to find that there were working models with CDMA radios. Planning-wise, non-exclusivity is just around the corner one wya or the other and it *would* be surprising to find that Apple didn't have plans with regard to both technical issues, new vendors, and marketing to be ready to take advantage of widening its market.
verizon in the shorter term is less likely given the kick-back....verizon is much less likely to kick that subsidy back to apple.
Once market for the iphone continues to scale out and begins to approach bigger volume-commodity phase, Apple will likely be ready to demand less subsidy and that will open the door to other carriers.
This is actually likely one of the reasons for the huge price and marketing push on the device...ATT is trying to max out revenue and customer growth before the exclusivity ends and Apple is hoping to push the market for the device into a higher-volume profile that will make them less reliant on the subsidy to to make their revenue targets while continuing to aggressively growth the market.
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